Explanatory Memorandum(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)
Chapter 4 - Consequential amendments for taxation of gaseous fuels
Outline of chapter
4.1 Schedule 4 to this Bill amends the Excise Act 1901 and the Fuel Tax Act 2006 . The purpose of these minor consequential amendments is to ensure that the legislation bringing the gaseous fuels (liquefied petroleum gas (LPG), liquefied natural gas (LNG) and compressed natural gas (CNG)) into the fuel tax regime applies as intended and does not impose excessive compliance costs on gaseous fuel manufacturers, importers, distributors, or suppliers.
Context of amendments
4.2 The Taxation of Alternative Fuels legislation package of four Bills received Royal Assent on 29 June 2011. The package brings the transport use of LPG, LNG and CNG into the excise and excise-equivalent customs duty regime (otherwise referred to as the fuel tax regime) from 1 December 2011, with the full rate of fuel tax applicable from 1 July 2015. The fuel tax rate increases in equal amounts on 1 July each year over the transition period.
Summary of new law
4.3 This Schedule makes minor consequential amendments to the taxation arrangements for gaseous fuels. The amendments include:
- confirming that excise duty does not apply where CNG for transport use is manufactured in a home refuelling unit or units that collectively do not have commercial scale capacity;
- confirming that entitlements to fuel tax credits are available to distributors of LPG in a wider range of circumstances; and
- ensuring that the content of LPG notices may be prescribed in regulations only and that the content of these notices is not also set out in primary legislation.
Comparison of key features of new law and current law
(from 1 December 2011)
|Provision of notices|
|The information to be provided on LPG notices may be prescribed in regulations only.||The information to be provided on LPG notices is set out in the excise legislation and further details may also be prescribed in regulations.|
|Exemption of CNG manufactured in home refuelling units|
|CNG manufactured in a home refuelling unit or units at residential premises with a maximum collective rated capacity of 10 kilograms or less per hour, or another amount prescribed in the regulations, and that is not onsold, is not liable to excise duty. This exemption applies whether or not the CNG is used in an enterprise.||Manufacturers of CNG at residential premises for home refuelling of CNG-powered vehicles for business use are required to be licensed as an excise manufacturer and pay excise duty.|
|Extension of fuel tax credit entitlement to gaseous fuel distributors|
|Fuel tax credits are available to unlicensed distributors who supply for non-transport use, non-bulk duty paid LPG to entities that are not enterprises.||Fuel tax credits are not available to distributors when non-bulk duty paid LPG is supplied for non-transport use by unlicensed distributors to entities that are not enterprises.|
Detailed explanation of new law
Notice requirements for supplies of LPG
4.4 Section 77L of the Excise Act 1901 , as enacted in the Taxation of Alternative Fuels Legislation Amendment Act 2011 , imposes an obligation to give notices when LPG subject to a remission of duty is supplied for non-transport use. Paragraphs 77L(3)(a) and (b) of the Excise Act 1901 , as enacted, required that the notice:
- set out that excise duty has not been paid on the LPG supplied;
- set out the effect of the penalty provisions that apply for selling or using duty free LPG for transport purposes; and
- be given in the manner and form prescribed in regulations.
4.5 The requirements to set out in LPG notices that LPG for non-transport use is duty free and that penalties apply for sale or use for transport purposes are removed. The result of this change is that while the requirement to provide a notice when LPG is supplied for non-transport use is maintained in the legislation, the content of notices may only be prescribed in regulations. This allows maximum flexibility to develop, in consultation with industry, the text of notices that inform purchasers of LPG for non-transport use of their obligations. This approach minimises the compliance cost impact for entities that supply these notices. [ Schedule 4, item 3, subsection 77L(3) of the Excise Act 1901 ]
Transitional arrangements for notices
4.6 Regulations concerning the form and content of LPG notices that were made under the regulation-making power in paragraph 77L(3)(b) of the Excise Act 1901 are treated as having been made under the corresponding power under this Schedule. This transitional provision is required as the regulation-making power for the form and content of LPG notices has been relocated within subsection 77L(3) in this Schedule. [ Schedule 4, item 4 ]
Exemption of CNG manufactured in home refuelling units
4.7 Natural gas supplied to residential premises can be compressed in home compressing units and used as CNG fuel for vehicles. There is currently limited home refuelling of CNG because of the significant cost of domestic CNG manufacturing equipment, installation costs and the cost of converting vehicles. Without amendment of the law, home CNG refuellers who carry on an enterprise, for example as tradespeople, would be required to apply for an excise manufacturing licence, and make regular excise returns for small amounts of excisable CNG transport fuel. Accordingly, the exemption for home refuelling available to entities that are not carrying on an enterprise is extended to CNG produced in domestically-rated manufacturing equipment even if it is used in a vehicle used for business purposes.
4.8 The exemption is capped by limiting the collective manufacturing capacity of all CNG refuelling equipment at a residence to equipment capable of manufacturing no more than 10 kilograms per hour of CNG or such other amount prescribed in regulations. The capping of the exemption ensures that larger scale CNG manufacturing for transport use at residences is subject to excise duty. [ Schedule 4, items 1 to 2 of the Excise Act 1901 ]
Example 4.23 : Home CNG refuelling - business use Camille and Sebastien have installed domestically-rated CNG manufacturing equipment at their home. The equipment has a capacity to manufacture 8 kilograms of CNG per hour. Camille operates her business vehicle on CNG manufactured by this equipment, while Sebastien owns a car, which is used for private purposes, and uses CNG that is refuelled from the CNG equipment at their home.There is no excise liability from the manufacture of the CNG at their residence as the total CNG manufacturing capacity at their home is not more than 10 kilograms of CNG per hour.
Eligibility for fuel tax credits
4.9 The Fuel Tax Act 2006 is amended to ensure that fuel tax credits are available to unlicensed distributors of LPG who supply customers with LPG in storage tanks or supply LPG into customers' storage tanks that have a capacity of 210 kilograms or less. This amendment ensures that the entitlement arises whether or not the customer carries on an enterprise. This ensures that unlicensed distributors who buy LPG subject to duty (provided a fuel tax credit has not been claimed earlier in the supply chain) can claim fuel tax credits where they, for example, supply bottled LPG to customers regardless of whether the customer carries on an enterprise. [ Schedule 4, item 5 of the Fuel Tax Act 2006 ]
Example 4.24 : Supply of bottled LPG Australian Camping Supplies is a business that sells camping goods, including LPG gas bottles for camping applications. The business buys duty paid LPG that is stored in a one tonne storage cylinder and then fills small LPG cylinders for sale to customers for camping gas. Australian Camping Supplies can claim a fuel tax credit on its Business Activity Statement for duty that it has paid on LPG that is sold to customers in the small cylinders for camping applications.
Application and transitional provisions
4.10 The amendments in this Schedule come into effect immediately after the commencement of Schedule 1 to the Taxation of Alternative Fuels Legislation Amendment Act 2011 on 1 December 2011. [ Clause 2, table item 7 ]
4.11 The commencement date of this Schedule ensures that the broadening of the CNG excise exemption, the expanded fuel tax credit entitlement and the more flexible LPG notice requirements benefit the gaseous fuels industry as soon as the new taxation arrangements for gaseous fuels come into operation on 1 December 2011.
4.12 The amendment to the fuel tax credit entitlements of unlicensed distributors of LPG applies to fuel acquired, manufactured or imported from immediately after the commencement of Schedule 1 to the Taxation of Alternative Fuels Legislation Amendment Act 2011 . [ Schedule 4, item 7 ]
4.13 This Schedule replaces the reference to 'carrying on an enterprise' with the same term but with the inclusion of asterisks to highlight that the terms are defined terms in the fuel tax legislation. [ Schedule 4, item 7 of the Fuel Tax Act 2006 ]